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Currency Revolution. CHINA|The application of "Retail Digital Hong Kong Dollar" is beyond imagination, but the HKMA has not yet decided

2022-01-20T06:43:40.630Z


Central bank digital currency (CBDC) can be divided into two categories in design: retail level and wholesale level - the former is used by the general public (including enterprises and individuals), and the latter is targeted at financial institutions for inter-bank transaction settlement.


Central bank digital currency (CBDC) can be divided into two categories in design: retail level and wholesale level - the former is used by the general public (including enterprises and individuals), and the latter is targeted at financial institutions for inter-bank transaction settlement and other purposes.

In practical applications, to a certain extent, the retail central bank digital currency (hereinafter referred to as "retail CBDC") is similar to the "FPS" widely used by Hong Kong people. The same public goods in the digital age are provided by the government and serve mass consumers. ; But unlike RPM, retail CBDC has wider application scenarios and higher productivity.

So, how exactly is a retail CBDC different from traditional electronic payments?

When will the "Retail Digital Hong Kong Dollar" be launched?

May wish to re-understand its economic value from the three market players of government, consumers and commercial institutions.


"Monetary Revolution" In-Depth Report Part 3


The distribution of "consumer coupons" has led to the development of electronic payment in Hong Kong. However, in the application of electronic money in the digital age, Hong Kong still lags behind other countries.

(file picture)

Currency Revolution.

Top | What is a central bank digital currency?

As of the end of September last year, more than 9 million FPS users were registered, and an average of more than 740,000 transfer transactions worth HK$5.2 billion were processed every day.

The think tank "Unite Hong Kong Fund" published a research report "Central Bank Digital Currency - Building the Cornerstone of Digital Finance" last year, pointing out that the rapid surge in the number of users of FPS proves the huge demand for public goods in the electronic payment category.

Similar to FPS, retail CBDC is also a public product in the digital age, provided by the government to serve mass consumers; but the difference is that retail CBDC has wider application scenarios and more significant improvements in productivity.

Government Perspective: Efficient Transmission of Policies

From a government perspective, central bank digital currency (CBDC) is regarded as an efficient and precise policy tool.

In an exclusive interview with the in-depth report team of "Hong Kong 01", experts such as visiting professor Chen Fengxiang of the City University of Hong Kong, researcher Chen Yingyin of the United Hong Kong Foundation, and You Yang, an assistant professor of the School of Economics and Management of the University of Hong Kong, all mentioned that retail CBDC can promote "inclusive finance". Especially the "Digital RMB" (e-CNY), which is currently at the forefront of the world.

Mu Changchun, director of the Digital Currency Research Institute of the People's Bank of China (PBOC), once said in an open forum that e-CNY can increase the coverage of digital finance in remote areas, reduce financial costs, help small and medium-sized merchants to conduct digital transactions, and improve capital turnover efficiency. Accelerate the approval and issuance of credit for agriculture and small and micro enterprises.

In addition to regulatory policies, CBDC can also be used as a regulatory tool.

Bloomberg published an industry study last month predicting that China may use e-CNY for real estate transactions to verify the source of funds for house purchases and prevent illegal loans from flowing into the property market.

You Yang commented that China is a "big government" system, Bloomberg's prediction is "very likely", "in application scenarios, the ideas of big government and small government are different", while the Hong Kong government is "relatively small", its research and development One of the footholds of retail CBDC is how to facilitate transactions.

The think tank "Unite Hong Kong Fund" published a research report "Central Bank Digital Currency - Building the Cornerstone of Digital Finance" last year, pointing out that the rapid surge in the number of users of FPS proves the huge demand for public goods in the electronic payment category.

(Photo by Yu Junliang)

Citizen's point of view: convenient daily transactions

At present, the operation of the electronic payment system in Hong Kong is still not smooth, and electronic payment is not fully popularized in small and micro merchants such as markets and mobile vendors.

If a free, easy-to-use and smart digital Hong Kong dollar (e-HKD) is launched in the future, this situation may be changed and consumers’ consumption experience will be comprehensively improved.

Chen Yingyin took the distribution of electronic consumer coupons last year as an example to compare the differences between the existing electronic payment system and e-HKD.

Last year, the process of distributing consumer coupons was very long, involving the communication between the government and commercial institutions, citizens, and retailers, and the construction of electronic systems. The procedures were quite complicated.

As of mid-October last year, the Consumer Council has received a total of 410 complaints about consumer vouchers, mainly including merchants setting their own minimum spending, repeated deductions and different refund arrangements.

"Using the programmability of CBDC, (distributing consumer coupons) will be much faster." Chen Yingyin explained that before the distribution, the government can use smart contract codes to specify who the money should be distributed to, usage, limit, duration, etc.

After that, just simply run the code, the money will be sent out quickly and accurately, and it does not need to rely on the Internet and mobile phones when using it, just like cash.

Even if there are repeated deductions and requests for refunds, the direction of the money can be traced and processed quickly. In this way, complaints about "electronic consumer coupons" are expected to be greatly reduced.

If a free, easy-to-use and smart digital Hong Kong dollar (e-HKD) is launched in the future, it may comprehensively enhance the consumer experience.

(file picture)

Commercial Organizations: Cost Savings, Increased Efficiency

As a public product, retail CBDC serves not only the general public and the government, but also various commercial institutions.

Especially for financial institutions, the programmability of CBDC brings many possibilities.

Chen Yingyin introduced the application scenarios of combining smart contracts to improve the efficiency of commercial insurance claims.

For example, the claims settlement procedures of traditional medical insurance are complicated, requiring patients to pay in advance and send materials, while the insurance company needs to review and pay the compensation.

However, the whole process that consumes time, manpower, material and financial resources will become much simpler in the application scenario of CBDC.

She explained that insurance companies can cooperate with hospitals to build a blockchain platform to turn medical contracts into smart contracts and connect to the retail CBDC system; when patients visit a doctor, the hospital instantly shares data on the platform, and after the smart contract code executes judgment, You can automatically and immediately claim a sum of money to the hospital without the patient's advance payment.

Similar experiments are already being conducted in Singapore, she added.

You Yang believes that the Hong Kong government is "relatively small", and one of the footholds of its research and development of retail CBDC is how to facilitate transactions.

(provided by respondents)

e-CNY Winter Olympics Application

Of course, in order to realize the above applications, the currency management authority must first launch CBDC, and then private institutions will study business portfolios on financial infrastructure and explore the possibility of financial technology.

However, the progress of Hong Kong’s retail CBDC can be described as unsatisfactory, and the Monetary Authority has not yet confirmed whether it will launch a retail digital Hong Kong dollar.

In contrast, among major global economies, national retail CBDC trials are leading the way.

The People's Bank of China started the retail CBDC project in 2014, and then launched a pilot test in late 2019, covering at least 11 mainland cities.

According to Mu Changchun, as of the end of October last year, 140 million digital RMB personal wallets and 10 million public wallets had been opened, with a cumulative transaction volume of more than 150 million and a cumulative transaction value of about 62 billion yuan.

Fan Yifei, deputy governor of the People's Bank of China, publicly stated that the Beijing Winter Olympics scene is the next key area for piloting the digital renminbi.

According to reports, there are currently 359,000 digital RMB Winter Olympics scenarios, covering seven categories of scenarios including transportation, catering and accommodation, shopping consumption, tourism, medical and health care, communication services, and ticketing and entertainment.

Unlike the central bank, the Hong Kong Monetary Authority's research focuses on the wholesale digital Hong Kong dollar, not the retail one.

In response to an enquiry from Hong Kong 01, a spokesman for the HKMA responded: "The HKMA started to study CBDC as early as 2017...consistent with the current general opinion of the international community, the HKMA believes that CBDC has more potential in wholesale and cross-border applications, so Prioritize in-depth discussions on the application of CBDC in wholesale and cross-border payments.”

In fact, this is also a choice based on Hong Kong's financial and economic environment.

Seven of the world's eight leading CBDC projects are being promoted by developing economies, because CBDC can help developing economies improve the coverage of financial services, which is the aforementioned financial inclusion.

According to a 2017 World Bank survey (table below), only 80% of mainland Chinese have bank accounts, 60% have used digital payments, and more than 90% of Hong Kong adults have bank accounts.

In contrast, Hong Kong society does not have the severe financial service inequality problem of cotton bolls, so the social benefits of developing retail digital Hong Kong dollars are low, and it is not cost-effective compared with high investment.

Hong Kong 01 Cartography

e-HKD has yet to make a decision

Having said that, retail digital Hong Kong dollars is not entirely unnecessary.

If the retail digital Hong Kong dollar can be launched, citizens' lives will be more convenient, and commercial institutions and government livelihood services can also accelerate the digitalization process.

Last year, the HKMA has partnered with the Bank for International Settlements to launch Project Aurum, which is a feasibility study for a retail CBDC.

In October of the same year, the HKMA released the "e-HKD: a technical prespecitve" technical white paper (hereinafter referred to as the "e-HKD" white paper) on the retail digital Hong Kong dollar. Attitude to examine related issues.

Chen Yingyin commented that the "e-HKD" white paper is discussed in detail, and the industry and academia are welcome to participate in the discussion. The fly in the ointment is that there is no public consultation: "It is also very important for CBDC to consult the public well, to understand the needs of ordinary people for digital Hong Kong dollars. and worry.”

In its report, the United Hong Kong Fund suggested that the HKMA should formulate a "retail payment strategy" with reference to the practices of the European Central Bank and the Bank of Thailand, and use brochures, podcasts, videos, etc. to popularize the digital Hong Kong dollar and collect public opinions.

A spokesman for the HKMA responded that the retail digital Hong Kong dollar "is a complex issue", which is still in the early research stage and has not yet been finalized. He also pointed out that preliminary ideas will be put forward in mid-2022, and public consultation will be opened if necessary in the future. .

"Monetary Revolution" in-depth report:

Currency Revolution.

Top | What is a central bank digital currency?

Currency Revolution.

China|The application of "Retail Digital Hong Kong Dollar" is beyond imagination, but the HKMA has not yet decided

on the currency revolution.

Next|Hong Kong's Sin Chew Financial Dingdong Matou "wholesale digital Hong Kong dollar" needs to be whipped up

Source: hk1

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